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Canada’s surprisingly hot economy will cool slightly in 2018 as the Bank of Canada looks to ease growth and avoid high inflation. But potential for a long and messy U.S. withdrawal from NAFTA could get in the way of continued good times.

That’s the prognosis Evan Dudley, Assistant Professor of Finance at Smith School of Business, delivered during the school’s annual Business Forecast Luncheon, at Four Points by Sheraton Kingston on Thursday, Dec. 7.

“The Canadian economy is doing really well. Growth has come in above everyone’s expectations,” Dr. Dudley says, citing strong manufacturing, rising exports and renewed stability in the oil sector, after prices collapsed in 2016, as key contributors to the surge.

Real gross domestic product of 2.9 per cent nationally this year will slow to two per cent in 2018.

Dr. Dudley anticipates the central bank will raise interest rates twice in the year ahead to give the economy a “soft landing.”

Canada’s unemployment rate, which stood at 5.9 per cent in October, will remain low at six per cent in the coming year.

Inflation will be stable at 1.6 per cent, up from 1.4 per cent this year, thanks in part to low wage-hike pressures.

But NAFTA could throw a wrench into the nation’s economic gears. Should President Donald Trump signal that he wants out of the pact, NAFTA would effectively become a “zombie” trade agreement – not dead, but not quite living either, Dr. Dudley explains. The reason: it’s up to Congress, not Trump, to formally withdraw from NAFTA, and in the wake of a Trump declaration, pro- and anti-NAFTA lawmakers would face off in a long and heated battle.

“NAFTA would still be in place but companies exporting to the (U.S.) would put their capital investments on hold. They would not be able to make plans, and there would be a lot of uncertainty,” Dr. Dudley says.

Smith’s Business Forecast Luncheon drew more than 200 of Kingston’s business and government leaders. Speakers included Julian Barling, Professor of Organizational Behaviour and Borden Chair of Leadership at Smith, and Betsy Donald, Professor in the Department of Geography and Planning at Queen’s.

Dr. Donald weighed in on efforts to diversify the Kingston economy and attract more private-sector jobs. She pointed to several successes in recent years: Frulact Group, a Portuguese fruit processor, which has opened a plant; and the Chinese dairy processor Feihe International, setting up an infant formula-making facility here.

The city’s investment in its bus system has also paid off, she adds. Census data shows Kingston had the highest increase in public transit ridership in Canada: up 33 per cent from 2011 to 2016.

“I think Kingston is in a good position right now. The city has a newfound confidence,” Dr. Donald says.

Kingston’s downtown also holds potential, with people still choosing to live in the core.

“Other cities of our size are seeing their downtowns hollow out,” she explains. “Our downtown is a golden asset. It’s a walkable heritage asset on the waterfront.”

Kingston’s economy is enjoying good times mostly because the Ontario economy has done well, Dr. Dudley says. GDP in the Kingston census metropolitan area rose 1.8 per cent this year. Given Kingston’s reliance on government, education and healthcare jobs, it’s no surprise that figure is lower than the provincial average of 2.9 per cent GDP growth and also less than manufacturing cities, such as Oshawa and Windsor, which both saw 2.5 per cent gains.

“Kingston doesn’t see big surges in economic growth, but we don’t see big declines either,” he says.

However, overall job growth in Kingston has been strong. Dr. Dudley points to RBC Economics Research data that ranked Kingston fourth out of 27 cities across Canada for job growth, with a 3.7 per cent gain here during the 12-month period to October.